Russia’s military aggression against Ukraine has had significant economic implications. Ukraine
supplies various raw materials that are critical to chip manufacturing and that can be impacted by the
current crisis: neon, palladium and C4F639.
Ukraine is a major source of inert gases, such as neon required for the semiconductor lithography
process, and any disruption in the supply of neon and other noble gases could trigger shortages and
associated cost inflation. Some 45%-54% of the world's semiconductor-grade neon, critical for the
lasers used to make chips, comes from two Ukrainian companies, Ingas and Cryoin. They have halted
their operations during to current crisis, which may lead to an increase of prices and aggravate the
semiconductor shortage.
The stoppage impacts the worldwide output of chips, already in short supply after the coronavirus
pandemic. While chipmakers keep some stocks of neon on hand, production could take a hit if the war
continues.
Another effect has been the rise in price and likely disruption in the supply of natural gas, used as a
source of power in fabs as well as for burning exhaust gases from the manufacturing process to make
them safe. This will have a significant impact on operating costs.
The semiconductor industry uses air freight extensively. The flight bans over Russia have led to longer
air freight routes, with corresponding cost increases and delays.
Russia is an important producer of metals like aluminium, nickel and copper. Aluminium is a conductor
that is commonly used in packaging (wire bonding) and to manufacture passive components, such as
resistors and capacitors, commonly used in all types of electronic equipment. Any disruption in the
supply of any of these metals could cause prices to rise and subsequently impact the prices of
semiconductor devices and electronic systems. However, it is important to note that most chip
manufacturers have contingency plans, such as diversifying suppliers and maintaining high levels of
inventory.
The global semiconductor value chain had already been weakened by lean production strategies and
geopolitical frictions pre-dating the pandemic. The shortages have exposed structural vulnerabilities
across highly interdependent supply chains and have furthermore served to highlight Europe’s
dependency on supply from a limited number of companies and geographies with severe consequences
for many of its key industrial sectors.
